The scheme is a way to channel subsidies effectively to those in need
ON Christmas Day, chairman of Parti Pribumi Bersatu Malaysia and new de facto opposition leader, Tun Dr Mahathir Mohamad, reiterated that the government’s cash assistance, or the 1Malaysia People’s Aid (BR1M), is a bribe to the people. When he was prime minister, he did not give money to the people, he had said.
As at last year, 63 countries around the world, including developed nations and advanced economies, have some form of cash assistance, albeit by different names. In the United Kingdom, it is Income Support, the United States (Temporary Assistance for Needy Families, or TANF), France (Revenu de Solidarité Active, or RSA), Mexico (Oportunidades), and Brazil (Bolsa Família).
The United Nations estimated that as many as one out of seven people in the world received direct cash aid from their governments. So, if BR1M is bribery, then all these countries and their people must be guilty.
Like in the advanced economies and developed nations, BR1M is part of the big picture in the social security net that we are currently developing.
In the 1980s to 1990s, we were so busy building skyscrapers and mega projects that we forgot to develop our social security system adequately. Although the poverty rate then was as high as 30 per cent, only a handful received direct income support from the government and none received income support when they were involuntarily out of work or faced personal financial crisis.
It is no wonder then that during the 1997-1999 economic crisis, when unemployment suddenly sprung up, hundreds of thousands of people took to the streets, led by then sacked finance minister Datuk Seri Anwar Ibrahim. Perhaps, they had participated not because of Anwar, but because they had lost their jobs and were angry. There was no social security net to help them. Anwar capitalised on the wave of the mass dissent to gain support and, consequently, the crime rate and incidences of violence shot up.
Some experts posited that although in 1999, many applauded then prime minister Dr Mahathir for steering the nation out of the country’s worst economic crisis, he and Anwar were actually responsible for causing the crisis in the first place. George Soros just took advantage of the weaknesses and cracks in the management of the economy that had been building up for months prior to the crisis.
In the 1980s to 1990s, the richer ones were the one who received more subsidies from the government. Back then, if you drove a Porsche, you would have received and consumed, perhaps, five times as much fuel subsidy as compared with people in the low-income group, who drove a Kancil or rode a motorcycle. The more you consumed, the more you were subsidised. This is unfair and not right.
Under the subsidy rationalisation programme by Prime Minister Datuk Seri Najib Razak, if you are rich, you won’t get much subsidy. But, if you’re in the low-income group, the government would substitute the fuel subsidy with cash assistance through BR1M. This way, the subsidy is effectively channelled to the target groups in need of assistance.
In 2015, due to the fuel subsidy rationalisation, the government saved more than RM6 billion a year. Much of that is channelled back to the people through BR1M, and a portion for fiscal deficit reduction.
The alternative to cash assistance is the government deciding what you need and providing it to you in kind. For example, if the government thinks you need clothes, the government will buy clothes and give them to you or provide coupons for you to buy clothes. Similarly, if the government thinks you need food, phones, to fix your house, or others, coupons or vouchers are given.
Perhaps the above paternalism is the kind of policy an autocratic government may prefer, a policy based on the thinking that the government knows what’s best for the people, or it doesn’t trust them with cash or that the people don’t know what they need. Fortunately, our present government and leaders are not autocratic.
It’s impossible for the government to know what everyone needs. To ask the government to decide on each need is unadulterated madness. People know what they need and other necessities. Some need clothing, food, stationery for their school-going children or to fix their fishing nets. You can’t give coupons for all or provide them in kind without making a mess or much wastage .
The definition of basic necessity becomes less and less clear every day, making in-kind assistance even more ineffective as opposed to direct cash assistance. Today, a poor fisherman may have fish and food on the table, but needs money to fix his fishing net or boat. This is why cash is king. Not because cash rules, as some cynical misinterpretation of the euphemism may suggest, but because cash can be used as a medium to satisfy the various needs of the people that other mediums can’t.
Also, in-kind transfer as opposed to cash assistance would cost the government more to administer, most likely through a middle entity and not directly, thus making it inefficient and vulnerable to leakages.
According to a random controlled study by the US Naval Postgraduate School on cash versus in-kind food assistance in rural Mexico, those receiving cash experienced the same improvements in nutrition and child-health measures as those who received food, but the food programme cost 20 per cent more to administer. The study also showed the cash recipients didn’t spend more on tobacco or alcohol. Instead, it provided recipients with additional resources to spend on schooling, medicine and transport, and it lifted their general well-being.
The current increase in cost of living is much affected by the policy of the 1990s, a legacy problem now. Then, much of the infrastructure, such as highways and power plants, were built through privatisation and financed by committing the people to pay the private concessionaires for the use of the infrastructure decades into the future. In the early 1990s, the economy was booming. Overestimates of income growth by the administration then had in turn committed the public to give high payments to highway toll concessions and independent power producers.
Privatisation is good, but not when it is taken advantage of, with the over-inflated payments committed to the people for future decades. BR1M helps to minimise the burden of the increase in cost of living.
In the 1980s to 1990s, it was believed that if you developed several big businesses, the benefits would trickle down to the people. The thinking was that if you help the few people at the top, it would in turn translate into them helping the poor at the bottom. The administration then had used this as a policy to justify channelling huge government resources to several selected businessmen to become business tycoons. Many people at the top became richer. Unfortunately, not much trickled down.
Between 1989 and 1996, the share of total national income for the bottom 40 per cent dropped from 15 per cent to 13 per cent, compared with the increase of 52 per cent from 50 per cent for the top 20 per cent group. The cliche “the rich become richer, the poor poorer” was actually true then. Learning from this, the present administration took a different approach by growing the economy through businesses and the private sector, too, but at the same time, helping the people at the bottom and the middle.
Since Najib took office in 2009, the incidences of poverty decreased substantially, from 3.8 per cent in 2009 to below one per cent today, lifting more than 100,000 households out of the poverty status.
In the early 1990s, during the dotcom boom, the US, the largest economy in the world, was growing rapidly. Between 1992 and 1997, as a result of the growth, for the first time in history, the US had a fiscal deficit reduction for five years in a row. The rest of the world was in a high, too, because of this. The world annual growth rate doubled during this period.
They say a rising tide lifts all boats, and Malaysia, like many other nations, benefitted from this general world growth — she grew at an annual rate north of seven per cent during this time.
It is perhaps easier to grow the economy when the world is growing rapidly like in the early 1990s. Granted we did well then, but, we were lucky. And, like many other nations back then, we, too, rode the wave of high tide. Retrospectively, perhaps the self-claimed “Malaysian Miracle” was not a miracle after all.
It is much harder now to grow the economy when the world is slowing down. Singapore, for instance, is struggling to keep growth up. Growth is slowing down to about one per cent. In the first nine months of 2016, the number of workers who lost their jobs in Singapore hit a seven-year high. More than 13,000 people have lost their jobs recently in the island state, the highest since the financial crisis in 2009.
In Malaysia, despite what doomsayers say, things are actually better. At more than four per cent growth, we are growing higher than the average of the world, and anchoring unemployment at three per cent while keeping poverty below one per cent. The World Bank has estimated that the Malaysian economy will be even better this year.
This is what the present administration, led by Najib, has done through hell and high water, at the expense of his political capital. This is the gist of “Najibnomics”, the policy of growing the economy even through hard political choices, while taking care of the least fortunate people at the same time. Najib once said that during his watch, no one will be left behind.
In the 1970s, the then prime minister elevated millions out of poverty. This was the legacy of Tun Abdul Razak, the second prime minister, and it continues through his offspring.
At the end of the day, as a society, we will be judged not by how we treat the richest and most fortunate among us, but how we treat the poorest and least fortunate.
And, the exemplary manifestation of this belief will be Najib’s most important legacy.
The writer, Isham Jalil who has an MBA in finance from Wharton School and masters in public policy in politics, economics and law from Harvard, is president of Sukarelawan Malaysia. He has experienced three of the nation’s economic crises in the last four decades from the perspective of the man-in-the-street